Nearly a decade after his rocky stint as prime minister ended in a landslide defeat, his inaugural speech Tuesday evening completed a comeback. But Israel's leader is still dogged by a legacy of diplomatic stagnation that unnerves both the international commuinty and Israelis – a legacy he sought to overcome in his address to parliament.

"Israel aspires to a full peace with the Arab world," he said, as he presented his new right-wing government. "I say to the Palestinians, 'If you really want peace, we can achieve peace.... We will conduct continuous negotiations.' "

Netanyahu's shift in emphasis from criticism of the peace process to stressing his desire to "engage" with new ideas stems in part from an ill-fated first go-round as premier, which observers say chastened the man known for his hubris.

The change, however, is more a function of style and tactics rather substance, say many analysts. While they say his worldview is still that of a pragmatic hawk who is skeptical about making concessions to Israel's Arab neighbors, observers point to a mellowed political style and a more carefully considered tactician.

"Netanyahu is still a very strong idealist," says Aviv Bushinsky, who served as Netanyahu's top media advisor during his first term. "I think he will be more cautious before making decisions. Even if he reaches the same decisions, he'll prepare the ground better."

Last time: a wunderkind bent on opposing peace

When Benjamin Netanyahu became Israel's youngest prime minister in 1996, he had a reputation as a brash political wunderkind bent on putting the brakes on the Oslo peace process adopted by the administration of former US President Bill Clinton.

Despite that tension, Netanyahu compounded the strained relations with Israel's all-important ally by publicly meeting with Christian-right evangelicals like Jerry Falwell – prominent opponents of Israeli concessions to the Palestinians – on a US visit in 1998 aimed at advancing the peace process.

The contrast in his approach to relations with the Obama administration has been telling. Recognizing that in order to confront Iran he cannot afford another rift with the White House, he has stressed his desire to "engage" with new ideas. And though he doesn't see eye to eye with Obama and Secretary of State Hillary Rodham Clinton on the urgency of resolving the Palestinian conflict, Netanyahu has sought to smooth over those differences by stressing the points in common with the Obama administration.

But Netanyahu comes into office at a time when Iran's growing regional influence and nuclear aspirations figure just as high on Israel's regional agenda – if not higher than – Arab-Israeli peace.

Identifying the spread of "extremist Islam" as the source of Israel's security "crisis," Netanyahu addressed Iran directly in his speech Tuesday: "We won't let any person or state to put a question mark over our existence."

Zalman Shoval, a former Israeli ambassador to the US and foreign policy adviser to Netanyahu, argues that containing Iran has become a precondition for progress on the peace process.

"There's a close relationship. If Iran was allowed to have nuclear weapon, then the whole nature of the peace process will change," he says. "The moderates will be the losers" and peace-process opponents like Hamas will grow stronger.

Common ground with US on Arab-Israeli peace

Though Netanyahu doesn't see eye to eye with Obama and Secretary of State Clinton on the urgency of resolving the Palestinian conflict, he is seeking to smooth over those differences by stressing the points in common with the US administration.

"He'll emphasize close cooperation with the US, and this also reflects on the peace process," says Mr. Shoval. "In the same way that Hillary Clinton put it, the Palestinians should run their own lives."

While Netanyahu has remained a critic of peace negotiations with the Palestinians, he has proposed a different approach to peace: an economic one.

Peace negotiations will come to fruition only after the US-backed Palestinian Authority is strong enough to assume control over the West Bank, and only after control of the Gaza Strip is wrested from Hamas, say Netnayahu's aides.

So instead of pushing talks on the thorny final status issues like the future of Jerusalem, Netanyahu has promoted an "economic peace" in the West Bank, suggesting that support for militants will drop if Israel and the international community can spearhead business and investment. But there are doubts about the effectiveness of this approach. "The global economic situation is such that nobody has money to make investments, and if they did have money, why would they come to the West Bank," says Gershon Baskin, head of the Israel-Palestinian Center for Research and information. "It's difficult for me to see how he can make progress."

"We see a full peace with the Arab world," Netanyahu said in his remarks. "I wanted to isolate extremist Islam from the rest of the Muslim and Arab world, which is also threatened."

During his first term in office, Netanyahu conducted secret talks with the Syrians via US businessman Ron Lauder, and discussed giving up parts of the Golan Heights. Many analysts think that a deal with Syria would help the US and Israel turn the tables on Iran, but Netanyahu is almost sure to encounter fierce political opposition from coalition partners and his own party.

But Bushinsky noted that this time around, Netanyahu is liable to be looking for a place in Israel history rather than being remembered as having tried twice and come up with no results.

"It's like an American president in his last term," he said. "If he won't do anything, he won't do anything, and it will be the end of his career. I think he will be braver than before."